*

• Introductory Remarks

• Shale Gas “101”

• WCSB - Horn River and Montney

• U.S. Lower 48 Overview

• Marcellus Shale

Agenda

http://www.transcanada.com

Shale gas changes everything…

“The successful commercial production of natural gas from shales, which comprise

approximately 50 % of the sedimentary rock record, is nothing short of revolutionary and the most exciting technical achievement of

petroleum engineering and the geosciences in the last 60 years, inevitably leading to major

structural changes in the natural gas industry”

G. Pflug 2009

As founder of Mitchell Energy,* George Mitchell is the undisputed father of the North American shale gas revolution; he embodies the best traditions of American ingenuity, determination and value creation.

Through experimentation and perseverance, it took him only 18 years to turn the Barnett Shale play into an “overnight” success and in so doing create a new industry!

* Sold to Devon Energy for $3.5 Billion in 2001

George P. Mitchell: entrepreneur, oilman & philanthropist

Shale gas is making headlines…

Reuters Sept. 10, 2009 Encana’s Horn River Shale Gas Find

Among North Americas Biggest

The Burgess Shale* made headlines 100 years ago!

*Cambrian Age - 505 MYA

Mount Stephen: Burgess Shale – Yoho National Park

Charles Doolittle Walcott, former head of

the Smithsonian Institute and the

U.S.G.S. changed our understanding of the

natural world.

Dismantling the gas resource pyramid…

The Gas Resource Pyramid

Conventional reservoirs discrete accumulations

hard to find / easy to producemed. – high quality perm

1.0 - 1,000 md.

Commercial success in shale gas is achieved through a “manufacturing” approach, utilizing economies of scale & the application of leading edge drilling & completion technology

Shale Gas unconventional resource play

continuous accumulations easy to find / hard to produce - extremely poor perm

.0001 - .001 md.

CBM unconventional - very poor perm

.001 - .01 md.

Tight Gas transitional - poor perm

0.01 - 0.1 md.

$

$

$

$

$

Resource base increases with

increasing costs continuous accumulations

rese

rvoir

sour

ce &

rese

rvoir

Shale plays produce gas from the HC “source” rock

American Petroleum Institute

conventional gas

organic gas shale

What is a gas shale anyway?

• Extremely fine grained marine sediments• Have both organic (carbon) & inorganic (clay) component• Ultra low porosity & permeability• Shale is both HC source rock (NG “kitchen”) & reservoir• Gas shales can be thermogenic (deep, heat & pressure) • Gas shales can be biogenic (shallow, microbial by-product)• Typically has vast amounts of gas in place (resource)• Gas storage: both as free gas & sorbed gas• Gas flow: diffusion (matrix) & Darcy flow (fractures) • Production requires high density fracture network• Carbonate (limestone) environment - “pure” shales• Clastic (sandstone) environment – “mixed” shale assemblages• Shale plays like other “resource” plays are easy to find but

technically challenging & expensive to produce

Organic Shales in Outcrop

Black organic shales in core, under microscope & SEM

100 microns

0.25 mm1.0 m

organic carbon

Shale Gas Storage: “Sorbed” vs. “Free” gas

CH4 - Methane molecule

Shale Gas Flow: Matrix “diffusion” vs. “Darcy” flow

Darcy Flow

Matrix Diffusion to well bore

Permeability Comparisons

0.0001

Conventional GasTight GasShale Gas

US DOE STUDY

Creating Permeability

Brittle: good Ductile: bad

after Bustin & Ross

Drilling & Completions Breakthrough

Horizontal drilling with laterals exceeding a mile in length in combinations with

massive multi-stage hydraulic fraccing (20 stages) has revolutionized the gas

industry.

Horizontal Drilling & Multi-Stage “Slickwater” Fraccing

Horizontal “leg” with 7 stage frac zones – up to 1 mile in length

Requires 4 - 8 million gals. of water & 2,000 – 3,000 tonnes of sand

5 yrs 10 yrs 15 yrs

Horizontal drilling & 6 multi-stage fracs

vs. Vertical drilling & 1 frac

Conventional vertical drilling exp. 2

3

1

4

Prod

uctio

n R

ate

5

6

Production Decline: exponential vs. hyperbolic

Conceptual Development Model – Apache: Horn River

Horn River - Apache Corp

• 28 Hz wells / pad

• 400 Bcf GIP per pad

• 150 Bcf rec. per pad

• 80 – 100 Mmcf/d 1st yr.

Emerging North American Shale Gas Plays

Hot Areas

It all started with the Barnett

Horn River Shale Gas Play

0

200

400

600

800

1,000

1,200

1,400

Q2/05 Q4/05 Q2/06 Q4/06 Q2/07 Q4/07 Q2/08 Q4/08 Q2/09$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Bonus (M$) Area Ha (000) $ Per Hec.

Robust N.E. British Columbia P&NG Landsales

Since 2006, at least 19 companies have paid the B.C. Govt. $3.65 billion to lock up large land positions wrt. Horn River

and Montney resource play.

Thou

sand

s o

f H

ecta

res

Alberta

B.C.SK

Swampy muskeg terrain requires winter drilling

Tough sledding during spring thaw

Horn River: Devonian Paleo Geography

After R. Blakely, University of Arizona

Horn River: Geological Setting

Horn River Basin

4,200 mi2 2 x Barnett

Bovi

e Lk

. Fau

lt Sy

stem

Slave Point Carbonate Platform

A

B

Alb

erta

Cordova Embayment

B.C

.

Liard Basin

NWT

Conventional Slave Point Gas Pool

Shale Gas

Horn River: Depositional Setting

Horn River Muskwa vs. Barnett Shale (EOG)

6-7 TOC % 4-5

Modified from EOG 02/08

6.8/well

Devonian Mississippian

6.3/well

Horn River Play Summary

Multiple wells from single

padEOG 6-8 TcfQuicksilver

2-3 TcfStorm Mtn.

1-2 Tcf

Devon 6-8 Tcf

Nexen 3-6 TcfImperial/Exxon 2-3 Tcf

Encana Apache JV 12-16 Tcf

Maxhamish

Sierra Ekwan

ConocoPhillips 3-5 Tcf

Crew 1-2 Tcf

IP’s of 3 - 8 Mmcf/d and total “discovered” resources of 37 - 55 Tcf have been announced

by various operators in the basin.

• Area is extremely remote & winter drilling• Lack basic infrastructure (roads, plants) • 2,700 m vert. & 1,500 hz. leg• $10 – $20 Million per completed well• Dry gas with 10 - 12% CO2

• Potential 500 - 700 TCF OGIP “basin wide”• Est. production of 50 Mmcf/d & potential

for 1.0 – 1.5 Bcf/d by 2020

Montney Hybrid Gas Play

Outcropping Montney Formation Interbedded sandstones,

siltstones & shales

Montney well pad near Dawson Creek B.C.

Montney – Triassic Paleo Geography

After R. Blakely, University of Arizona

Montney: Depositional Setting

NE B.C. Alberta

Shale & Tight Gas

Montney: Stratigraphy

Modified from Discovery Digest

Montney Play Summary

Fort St. John

Dawson Creek

Monias

Cutbank

Dawson

Swan

Groundbirch

McMahon Gas Plant

B.C. Alberta • Not a “pure” organic marine shale play like Horn R.

• Montney is a “hybrid” play consisting of a mix of inter-bedded tight sands, siltstones & shales

• Play becomes “shalier” going west into B.C.

• Target formations include: Upper & Lower Montney, Doig & Cadomin

• Considerable existing infrastructure in place – less so to the west

• Completed Hz. wells & tie in cost $5 – $10 Million

• Current drilling focus is on clastic “sweet spots”

• Hz. drilling & multi stage fracs key to development

• Potential for 400 – 500 TCF of OGIP

• Potential for 1.0 - 1.5 Bcf/d by 2020

• Key players: Encana, ARC Res., Advantage, Devon, Birchcliff, Cinch, Talisman, Murphy Shell (bought out Duvernay)

WCSB Shale Gas - Key Messages

• WCSB is undergoing a significant shift from conventional gas to continuous

accumulation unconventional “resource” plays

• Shale plays like other “resource” plays are easy to find but challenging to produce

• WCSB shale gas resource base is vast > 1,000 Tcf OGIP

• Development is extremely capital intensive requiring players with “deep pocket”

as the current gas price environment is extremely challenging.

• Horn River Basin drilling & piloting is yielding very encouraging early results,

however development is R&D in nature & future pace of development is

uncertain.

• Montney play is already commercial and results are exceeding initial producer

expectations – development pace is on track.

• Large scale shale gas developments will take several years to make a significant

impact on the overall gas supply picture

• WCSB shale gas is generally remote, lacks infrastructure, distant from major

markets U.S. markets requiring innovation & cost efficiency to be price

competitive with Lower ’48 shale gas plays.

TransCanada (NGTL) Pipeline Expansions

Ziff Energy 2009

WCSB Gas Supply & Demand

The pace of development is the biggest uncertainty for WCSB shale gas supply due to the low gas price environment

U.S. Lower 48 Shale Gas Plays

The first producing gas well in the U.S. was completed in 1821 in Devonian aged shales near the

town of Fredonia, New York.

+ proven reserves: 238.7 TCF (2007)

Shale Gas Resource Estimates

Compiled from Daily Oil Bulletin 5/09 & Ziff Energy 03/09

Legend:

Horizontal drilling supports U.S. gas production

Source: Baker Hughes

Devonian Shale outcrop in New York State

Marcellus Shale Paleo Geographic Setting

Marcellus Shale – Appalachian Basin

Source: RSEG, Atlas of Major Appalachian Gas Plays

Marcellus Shale: Thickness & Depth

Marcellus Shale Play: Operators

Top 10 Operators by Acreage position:

1. Chesapeake 2. Range 3. East 4. Talisman 5. National Fuel 6. Dominion 7. StatOil Hydro 8. Atlas 9. Chief 10. Equitable

Marcellus Shale Production Forecast

Tudor, Pickering, Holt

There is a wide range of opinions on the pace of Marcellus

shale gas production buildup…

40%

8% Shale gas30 - 35 % ??

As the sun sets on the conventional oil and gas industry ….

“The future ain’t what it used to be” – Yogi Berra New York Yankees 1946 - 1963

Need gas ? Drill and it shale

be given…

… it’s rising on the unconventional gas

industry!

Thank you for your interest and attention!

Slide Number 1Slide Number 2Slide Number 3Slide Number 4Shale gas changes everything…Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10 The Gas Resource PyramidShale plays produce gas from the HC “source” rockWhat is a gas shale anyway?Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Creating Permeability Slide Number 20Horizontal Drilling & Multi-Stage “Slickwater” Fraccing Production Decline: exponential vs. hyperbolic Conceptual Development Model – Apache: Horn RiverEmerging North American Shale Gas PlaysHorn River Shale Gas PlaySlide Number 26Slide Number 27Slide Number 28Slide Number 29Horn River: Geological SettingSlide Number 31Horn River Muskwa vs. Barnett Shale (EOG)Horn River Play Summary Montney Hybrid Gas PlaySlide Number 35Slide Number 36Slide Number 37Montney: Depositional SettingSlide Number 39Slide Number 40WCSB Shale Gas - Key MessagesTransCanada (NGTL) Pipeline ExpansionsSlide Number 43Slide Number 44Slide Number 45Slide Number 46Slide Number 47Slide Number 48Slide Number 49Slide Number 50Slide Number 51Slide Number 52Slide Number 53Slide Number 54Slide Number 55Slide Number 56